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Sunday, September 11, 2016

by Robert P. Murphy - A recent article in the Tennessean
discussed an affordable housing bill that includes “inclusionary
zoning,” which would require landlords in Nashville to set aside 14% of
their new units with prices the government deems “affordable.” Although variants of such policies exist
in almost 500 local governments in 27 states, the proposal is an
incredibly inefficient way to address the needs of low-income families
and will only invite corruption.

No one denies that there are many struggling families who find it
difficult to afford rent or mortgage payments. Yet, even if we thought
using government power were a valid means of addressing the
problem—rather than purely voluntary means of assistance—it makes little
sense to pass a rule forcing landlords to set aside an arbitrary
percentage of their stock as affordable. This rule would force landlords
to bear the brunt of the cost of a social goal, and would have many
unintended consequences that economists spell out in introductory
textbooks.

To see how inefficient the inclusionary zoning approach is, imagine
it were applied in other areas. For example, most Americans agree that
the government should step in to help low-income families obtain food
and to provide their children with a basic education. Imagine if the
government tried to achieve these goals by forcing farmers to make 14%
of their crops “affordable,” or to require all private schools to give
up 14% of their slots to low-income students who were charged a much
lower price than other students.

It should be clear that these hypothetical measures would be a very
inefficient way to make food and education affordable. Most obvious, by
placing the restrictions on the producers of food and
education, these hypothetical measures would make it less attractive to
go into farming or to start a private school.

A similar pattern holds for housing. Artificially capping the revenue
a landlord can earn on 14% of his rental units will make it less
attractive to build new apartment buildings in the first place. So yes, those low-income families who find housing will appreciate the price break, but there will be less housing to go around.

More generally, all of the problems with rent control apply to
inclusionary zoning as well. For example, if certain units in an
apartment complex are designated for the program, then there will be a
long list of families eager to get into these units—because they are
deliberately priced below the true market rate. Other things equal,
landlords won’t be nearly as eager to keep these customers happy,
compared to those paying full rent. When the water heater blows at 5:00
am, or the hallway needs a new coat of paint, the owner will not be as
responsive because his or her incentives have been artificially changed.
Thus, even the low-income families who obtain the special, cheaper
housing better come with lower expectations as well.

Finally, this proposal is just asking for corruption. The Tennessean
article stated: “Also at issue will be whether the city assists
developers with incentives or allows projects to avoid requirements in
exchange for making cash payments—money that, as proposed, would go into
the affordable housing fund.” It is a dangerous affair if the city
effectively says to certain business owners: We’re going to limit how
much money you can charge your customers, unless you pay up.

Although there is a genuine problem with low-income families
affording housing, the idea of “inclusionary zoning” rests on faulty
economics. It would actually reduce the amount of housing
available—for both rich and poor—and would reduce the quality of housing
even for those tenants still able to find places. If the people of
Nashville want to make housing more affordable for the poor, there are
more sensible approaches.

Robert P. Murphy is an economist who lives in Nashville. He is the
author of Choice: Cooperation, Enterprise, and Human Action (Independent
Institute, 2015).

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As the author of A Disgruntled Republican I often post items which I think may be of interest to the conservative, Republican, libertarian or the greater community. Posting of a press release or an announcement of an event does not necessarily indicate an endorsement. Rod